Dave Ramsey is a well-known personal finance expert with a long history of helping consumers make wise money choices and become debt-free.
What started as a one-person radio show has grown into a network of personal finance experts and products under the umbrella of Ramsey Solutions. Ramsey’s strong opinions about living debt-free also apply to home equity loans and home equity lines of credit (HELOCs).
Home equity loans and lines of credit are secured loans that allow you to borrow against the equity you’ve built in your home. But your home is collateral, and Ramsey generally advises against both types of loans.
In this guide:
- Does Dave Ramsey think home equity loans and HELOCs ever make sense?
- When does Dave Ramsey think HELOCs don’t make sense?
- Dave Ramsey’s take on the risks
- Does Dave Ramsey think home equity loans or HELOCs are better?
- Popular home equity loan and HELOC alternatives
Does Dave Ramsey think home equity loans and HELOCs ever make sense?
In most circumstances, Ramsey thinks home equity loans and home equity lines of credit (HELOCs) are a poor idea. But he acknowledges home equity loans offer several perks.
Ramsey doesn’t think the good outweighs the bad, but he considers the following positive aspects of a home equity loan. The only catch? These features don’t apply to every home equity loan or HELOC.
- Fixed interest rates: Most home equity loans offer a fixed interest rate, meaning your payments won’t fluctuate throughout the loan term. The consistency of a fixed interest rate can make it easier to budget each month.
- Tax deductions: If you use the funds from a home equity loan to “buy, build, or substantially improve” your home, the interest from the loan might be tax-deductible. But you must read the fine print from the IRS to ensure your home improvements meet the criteria.
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When does Dave Ramsey think home equity loans and lines of credit don’t make sense?
Ramsey advises making purchases with cash is better than using a home equity loan or HELOC. He advises against using the loans for typical expenses, such as home renovations. He advises against the following uses too.
- Retirement costs: Ramsey advises saving for retirement ahead of time. If you opt for a HELOC or home equity loan instead, he explains, you could be in debt for the rest of your life.
- Significant expenses: Large expenses, such as home renovations and college tuition for children, are prevalent reasons to get a loan or line of credit. Ramsey advises saving cash for expenses instead.
- Debt consolidation: As a proponent of living debt-free, Ramsey’s advice about using a HELOC or home equity loan for debt consolidation follows suit. He says the goal is to eliminate debt, not add more—regardless of the potential savings from a lower interest rate.
- Emergencies: Ramsey advises saving a separate emergency fund for unforeseen expenses. He does not advocate using a HELOC or home equity loan in emergencies.
Dave Ramsey’s take on the risks of HELOCs and home equity loans
Ramsey is vocal about the risks of a HELOC or home equity loan. He says to consider the following risks.
- You could lose your home: A HELOC and home equity loan are secured loans, and your home is the collateral. If you default, the lender could take your home. As long as you stay up to date on payments, that can’t happen. But Ramsey says it’s not worth the risk.
- You pay extra due to interest: Interest is the price you pay to borrow money. Interest rates fluctuate depending on the market and lender, but the loan will always have an interest rate. According to Ramsey, it’s better to avoid paying interest and focus on saving for expenses.
- It’s not a quick fix: You might be able to access the funds from a HELOC or home equity loan in a few weeks, but you could pay it back for decades. So it’s wise to consider how it might affect your finances over the long term.
- Extended repayment terms: HELOCs and home equity loans often have extended repayment terms of up to 30 years. The long repayment terms could lead to paying more interest fees. For decades, you won’t be debt-free, which Ramsey considers a top priority.
Does Dave Ramsey think home equity loans or HELOCs are better?
Home equity loans and HELOCs are lending options that access the equity you’ve built in your home. So you must be a homeowner and have equity to use the loans. But they have notable differences, too, as listed below.
| Home equity loan | HELOC | |
| Interest rate | Often fixed | Often variable |
| How to access funds | One-time lump sum | Line of credit |
| Repayment term | Often 10 – 30 years | Often 10 – 30 years |
| Payments | Fixed payments | Payments fluctuate |
Known to be anti-debt, Dave Ramsey often advises against HELOCs and home equity loans. But he notes a fixed interest rate is often better than a variable rate because it can help you create an accurate budget and plan. Most home equity loans have fixed interest rates, and HELOCs are often variable.
If you’re trying to decide whether a HELOC or a home equity loan is better for you, consider the loan terms and how you plan to use them.
What are popular home equity loan and HELOC alternatives?
If you don’t think a HELOC or home equity loan makes sense for your circumstances, you might consider these alternatives instead.
- Save cash ahead of time: If you need a loan to pay for a considerable expense, saving the money in advance can be wise. It’s not always possible, but you could save money on interest payments and other fees if you can. Plus, you won’t have to go through the process of getting a loan or credit card.
- 0% interest credit card: Consider balance transfer credit cards with 0% APR introductory rates or credit cards that offer the initial rate for any purchase you put on the card. These cards might be a solid option if you need to consolidate credit card debt. But it’s wise to pay the balance before the introductory rate expires, or you could pay an even higher rate than before.
- Personal loan: Personal loans are unsecured loans you can use for any purpose. Unlike a home equity loan or HELOC, you don’t need collateral to get one. You could pay a slightly higher interest rate, but depending on your needs and preferences, it might be worth it.
- Refinance your mortgage: If you refinance your mortgage at a lower interest rate, your monthly payments could decrease. You could then use the money you save each month to pay for other expenses or set it aside for significant expenses. You won’t be able to access your savings as a lump sum or line of credit with refinancing, but you could save money each month.